Fiscal cliff splits big, small businesses on taxes

WASHINGTON—The "fiscal cliff" debate is splitting the business community over taxes, driving a wedge between two natural Republican allies: the nation's corporate leaders who are helping strengthen President Barack Obama's bargaining position and the small business advocates bristling over the prospect of higher taxes.

Obama has been courting top CEOs, inviting them to the White House for "fiscal cliff" consultations and they have responded by being open to Obama's demand that tax rates go up on household income above $250,000. In turn, Obama has promised to consider changes in the tax code that would lower corporate tax rates.

Most small businesses, however, pay at individual income tax rates and the biggest earners among them would have to pay higher taxes if Obama succeeds in winning an increase in the top two marginal tax rates. They could face even higher tax payments if an overhaul of the tax code does away with business deductions or credits they now claim.

"This sort of laser like focus on corporate-only tax reform that we keep seeing coupled with revenues on the individual side is definitely a concern for us," said Chris Whitcomb, the top tax lawyer at the National Federation of Independent Business.

Leading Republicans have been quick to portray the rift in populist terms, casting Obama as a big business ally and the GOP as champions of small businesses.

For Obama, it is an unlikely role that underscores his own complicated relationship with the business community. Republicans in the past have criticized him for not consulting enough with the private sector.

Early in his term, Obama characterized Wall Street executives and bankers as "fat cats" and he has singled out oil and gas companies for their tax subsidies. But he also has won appreciation for expanding the government rescue of the auto industry and has promoted some tax breaks for small business.

Most recently, 158 CEOs from major corporations, all members of the influential Business Roundtable, signed a letter to Obama and Congress voicing support for tax revenue "whether by increasing rates, eliminating deductions, or some combination thereof." The stance put them at odds with House Speaker John Boehner, R-Ohio, and the Senate's Republican leader, Mitch McConnell, of Kentucky, who repeatedly have voiced opposition to raising tax rates.

The CEOs also called for more spending cuts than Obama. But the stance on rates was notable for the number of signatories the letter attracted, including Republican allies like Caterpillar CEO Doug Oberhelman, who endorsed Mitt Romney for president, and Rex Tillerson, Exxon's CEO, and Michael Duke, president and CEO of Wal-Mart Stores, Inc. The Business Roundtable's president is Michigan's former Republican governor, John Engler.

Coinciding with this week's business support was Obama's new fiscal cliff offer specifying his willingness to make changes in corporate taxes in 2013. But the offer included proposals Obama has been making for some time, including a 28 percent tax rate, down from 35 percent, for most corporations and a goal of 25 percent for manufacturers.

White House aides, however, say Obama will not yield on one key demand from multinational companies: their desire for a system that doesn't tax them in the U.S. for profits earned overseas. It's an idea Obama's own Export Council has endorsed.

But Obama trampled on the proposal during the presidential campaign after Romney embraced it. Obama criticized the idea as a job-killing proposal that would reward companies for taking jobs overseas.

He instead has called for a new minimum tax rate on foreign profits and a foreign tax credit for taxes paid overseas.

Obama addressed that issue privately with Business Roundtable members during a question and answer session with a roomful of CEOs last week

"He raised the issue," Engler said in an interview. "They were pleased, one, that the president sort of recognized the importance of doing corporate tax reform, and that he raised it in the context of economic growth and competitiveness."

Engler described the position as "kind of a hybrid approach."

"People thought that that was a good positive conversation," he said.

But small business advocates argue that large corporations might get the tax changes they want at the expense of small businesses.

"Higher rates and more revenue threatens corporate tax reform," Rep. Dave Camp, chairman of the tax-writing House Ways and Means Committee, said in a statement to the AP. "There just isn't enough the president can take out from small businesses and from individuals to get all the revenue he wants."

Indeed, Congress' Joint Committee on Taxation estimates Obama's proposal would hit about 940,000 people who report business income on their individual or household tax returns. While that amounts to only 3.5 percent of the people who report business income, those enterprises are projected to earn 53 percent of the $1.3 trillion in business income that will be reported on individual returns next year.

"We are aware of their concerns," Engler said. "We need those guys who are in our supply chain to do well."

But in a statement after Business Roundtable members released their letter to Obama and Congress, Dan Danner, president and CEO of the National Federation of Independent Business, made no effort to hide his disdain.

"It's unfortunate that some business leaders are so cavalier in asking the government to raise taxes on someone else - namely, on small business - while protecting corporate profits and Wall Street," he said.